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SUPPLY CHAIN MANAGEMENT 
Delivered By: 
Rishabh Agarwal 
MBA IIM-C 
(C) www.rishabhagarwal.in
Learning Objectives 
• To understand the escalating importance of SCM 
• To learn about Evolution of SCM 
• Understanding ...
A picture is better than 1000 words!! 
- A supply chain consists of 
Supplier Manufacturer Distributor Retailer Customer 
...
• Supply chain management (SCM) is the management of the 
flow of goods. It includes the movement and storage of raw 
mate...
Supply Chain Processes 
(C) www.rishabhagarwal.in
Traditional Scope of the Supply 
Chain 
Business logistics 
Physical supply Physical distribution 
(Materials management) ...
Evolution of Supply Chain Management 
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+ 
Demand forec...
UNDERSTANDING GLOBAL 
SUPPLY CHAIN MANAGEMENT 
AND LOGISTICS 
(C) www.rishabhagarwal.in
Well . . . . Is This Logistics ? 
(C) www.rishabhagarwal.in
Actually . . . . . This Is Logistics 
(C) www.rishabhagarwal.in
Transportation 
• Rail 
• low-value, high-density, bulk 
products, raw materials, 
intermodal containers 
• not as economi...
Transportation (cont.) 
•Air 
• most expensive and fastest, mode of 
freight transport 
• lightweight, small packages <500...
Transportation (cont.) 
•Water 
• low-cost shipping mode 
• primary means of international shipping 
• waterways 
• slowes...
Duties and Tariffs (cont.) 
APEC 
ASEAN 
ANZCERTA 
(C) www.rishabhagarwal.in 
FTAA 
NAFTA 
CALM 
ATPA 
TAFTA 
MERCOSUR
INCOTERMS Map 
(C) www.rishabhagarwal.in
• Sea and Inland Waterway Transport 
• FAS – Free Alongside Ship (named port of shipment) 
• FOB – Free on Board (named po...
• General Transport 
• EXW – Ex Works (named place of delivery). 
• CIP – Carriage and Insurance Paid to (named place of d...
UNDERSTANDING PURCHASE 
AS A CONCEPT 
(C) www.rishabhagarwal.in
Buy 
Purchase 
Procurement 
Contracts 
Sourcing 
Acquire 
Understanding Key Terminologies 
(C) www.rishabhagarwal.in
Buy – general act of acquiring anything 
Purchase – Money, ready made material 
Procurement – Plus Efforts 
Contracts – mo...
• Procurement steps 
• Procurement life cycle in modern businesses usually 
consists of 7 steps: 
1. Identification of nee...
1. Scope of Work 
2. Total Amount 
3. Delivery Date and Terms 
4. Payment Terms 
5. Bank Guarantees 
6. Currency Fluctuati...
Direct procurement 
occurs in 
manufacturing settings 
only. 
In contrast, Indirect 
procurement activities 
concern “oper...
• What instigates the movement of the work in the system? 
• In Push systems, work release is based on downstream demand 
...
• Factors that contribute to 
uncertainty 
• inaccurate demand forecasting 
• long variable lead times 
• late deliveries ...
Bullwhip Effect 
Occurs when slight demand variability is magnified as information 
moves back upstream 
(C) www.rishabhag...
UNDERSTANDING ROLE OF A 
SCM PROFESSIONAL 
(C) www.rishabhagarwal.in
Vendor Selection 
 Vendor evaluation 
 Critical decision 
 Find potential vendors 
 Determine the likelihood of them b...
Vendor Selection 
 Negotiations 
 Cost-Based Price Model - supplier opens 
books to purchaser 
 Market-Based Price Mode...
Supply Chain Strategies 
 Negotiating with many suppliers 
 Long-term partnering with few 
suppliers 
 Vertical integra...
Many Suppliers 
 Commonly used for commodity 
products 
 Purchasing is typically based on 
price 
 Suppliers compete wi...
Few Suppliers 
 Buyer forms longer term relationships 
with fewer suppliers 
 Create value through economies of 
scale a...
Vertical Integration 
Vertical Integration Examples of Vertical Integration 
Raw material 
(suppliers) 
Iron ore Silicon F...
Joint Ventures 
 Formal collaboration 
Enhance skills 
Secure supply 
Reduce costs 
 Cooperation without diluting brand ...
Keiretsu Networks 
 A middle ground between few suppliers and 
vertical integration 
 Supplier becomes part of the compa...
Just In Time (JIT) 
 “the right material, at the right time, at the right 
place, and in the exact amount”, without the 
...
Measuring Supply-Chain Performance 
• Inventory Turnover: how often the company replenishes 
inventory. High value of inve...
• Internet and E-Procurement 
• RFID Capabilities 
• SCM Software: ERP (Enterprise 
Resource Planning) Software e.g. 
SAP,...
• Information links all aspects of 
supply chain 
• E-business 
• replacement of physical 
business processes with 
electr...
RFID Capabilities 
(C) www.rishabhagarwal.in
• Direct purchase from suppliers over the Internet 
• Direct products go directly into production 
process a product, indi...
Online Sourcing/ Procurement 
Process 
(C) www.rishabhagarwal.in
Online Sourcing/ Procurement 
Process (cont.) 
(C) www.rishabhagarwal.in
Online Sourcing/ Procurement 
Process (cont.) 
(C) www.rishabhagarwal.in
• Enterprise Resource Planning (ERP) 
• software that integrates components of a company by 
sharing and organizing inform...
Linking Supply Chain with SAP (C) www.rishabhagarwal.in
Supply Chain Economics 
Supply Chain Costs as a Percent of Sales 
Industry % Purchased 
All industry 52 
Automobile 67 
Fo...
Losing Sight of the Common Objective 
I'm glad that the hole 
is not on our side! 
(C) www.rishabhagarwal.in
• Wikipedia 
• Annual Consulting Companies Report 
• Course Material B Schools 
• Internet Open Sources 
References 
(C) w...
© RISHABH AGARWAL 
WWW.RISHABHAGARWAL.IN 
(C) www.rishabhagarwal.in
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Supply Chain Management, Procurement, Sourcing, Acquire, and Logistics

Supply Chain Management, Procurement, Sourcing, Acquire, and Logistics

Supply Chain Management, Procurement, Sourcing, Acquire, and Logistics

  1. 1. SUPPLY CHAIN MANAGEMENT Delivered By: Rishabh Agarwal MBA IIM-C (C) www.rishabhagarwal.in
  2. 2. Learning Objectives • To understand the escalating importance of SCM • To learn about Evolution of SCM • Understanding Global SCM and Logistics • Understanding Purchase as a concept • Understanding key terms and jargons used in SCM • SCM Strategies • What’s New (C) www.rishabhagarwal.in
  3. 3. A picture is better than 1000 words!! - A supply chain consists of Supplier Manufacturer Distributor Retailer Customer Upstream Downstream (C) www.rishabhagarwal.in
  4. 4. • Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. • An integrated group of processes to “source,” “make,” and “deliver” products • Supply-chain management connects a company’s supply side with its demand side. • Competition is no longer between companies; it is between supply chains • That portion of the supply chain which comes after the manufacturing process is sometimes known as the distribution network • Importance of the Supply Chain: Globalization of manufacturing INTRODUCTION (C) www.rishabhagarwal.in
  5. 5. Supply Chain Processes (C) www.rishabhagarwal.in
  6. 6. Traditional Scope of the Supply Chain Business logistics Physical supply Physical distribution (Materials management) Sources of supply Plants/ operations Customers • Transportation • Inventory maintenance • Order processing • Acquisition • Protective packaging • Warehousing • Materials handling • Information maintenance • Transportation • Inventory maintenance • Order processing • Product scheduling • Protective packaging • Warehousing • Materials handling • Information maintenance Internal supply chain (C) www.rishabhagarwal.in
  7. 7. Evolution of Supply Chain Management Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+ Demand forecasting Purchasing Requirements planning Production planning Manufacturing inventory Warehousing Material handling Packaging Finished goods inventory Distribution planning Order processing Transportation Customer service Strategic planning Information services Marketing/sales Finance Supply Chain Management Supply Chain Management Logistics Purchasing/ Materials Management Physical Distribution (C) www.rishabhagarwal.in
  8. 8. UNDERSTANDING GLOBAL SUPPLY CHAIN MANAGEMENT AND LOGISTICS (C) www.rishabhagarwal.in
  9. 9. Well . . . . Is This Logistics ? (C) www.rishabhagarwal.in
  10. 10. Actually . . . . . This Is Logistics (C) www.rishabhagarwal.in
  11. 11. Transportation • Rail • low-value, high-density, bulk products, raw materials, intermodal containers • not as economical for small loads, slower, less flexible than trucking • Trucking • main mode of freight transport • small loads, point-to-point service, flexible • More reliable, less damage than rails; more expensive than rails for long distance (C) www.rishabhagarwal.in
  12. 12. Transportation (cont.) •Air • most expensive and fastest, mode of freight transport • lightweight, small packages <500 lbs • high-value, perishable and critical goods • less theft •Package Delivery • small packages • fast and reliable • increased with e-Business • primary shipping mode for Internet companies (C) www.rishabhagarwal.in
  13. 13. Transportation (cont.) •Water • low-cost shipping mode • primary means of international shipping • waterways • slowest shipping mode •Intermodal • combines several modes of shipping-truck, water and rail • key component is containers •Pipeline • transport oil and products in liquid form • high capital cost, economical use • long life and low operating cost (C) www.rishabhagarwal.in
  14. 14. Duties and Tariffs (cont.) APEC ASEAN ANZCERTA (C) www.rishabhagarwal.in FTAA NAFTA CALM ATPA TAFTA MERCOSUR
  15. 15. INCOTERMS Map (C) www.rishabhagarwal.in
  16. 16. • Sea and Inland Waterway Transport • FAS – Free Alongside Ship (named port of shipment) • FOB – Free on Board (named port of shipment) • CFR – Cost and Freight (named port of destination) Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods is NOT included. This term is formerly known as CNF (C&F, or C+F). • CIF – Cost, Insurance and Freight (named port of destination) Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. INCOTERMS International Commercial Terms (C) www.rishabhagarwal.in
  17. 17. • General Transport • EXW – Ex Works (named place of delivery). • CIP – Carriage and Insurance Paid to (named place of destination) The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. CIP is used for intermodal deliveries & CIF is used for Sea . • DDP – Delivered Duty Paid (named place of destination) Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum obligations on the seller and minimum obligations on the buyer. INCOTERMS International Commercial Terms (C) www.rishabhagarwal.in
  18. 18. UNDERSTANDING PURCHASE AS A CONCEPT (C) www.rishabhagarwal.in
  19. 19. Buy Purchase Procurement Contracts Sourcing Acquire Understanding Key Terminologies (C) www.rishabhagarwal.in
  20. 20. Buy – general act of acquiring anything Purchase – Money, ready made material Procurement – Plus Efforts Contracts – mostly services and agreements Sourcing – act of obtaining (repeatable/ not one time activity) Global/ strategic/ outsourcing Sourcing manpower, information, not necessarily goods Acquire – to gain possession, complete rights, e.g. you can not sell a pump in your name as it is not being acquired, Mergers and Acquisitions Understanding Key Terminologies (C) www.rishabhagarwal.in
  21. 21. • Procurement steps • Procurement life cycle in modern businesses usually consists of 7 steps: 1. Identification of need: 2. Supplier Identification: 3. Supplier Communication: 4. Negotiation: 5. Purchase Orders: 6. Logistics Management: expediting, shipment, delivery 7. Payment: SOP (Standard Operating Procedure) (C) www.rishabhagarwal.in
  22. 22. 1. Scope of Work 2. Total Amount 3. Delivery Date and Terms 4. Payment Terms 5. Bank Guarantees 6. Currency Fluctuation or Exchange Rates 7. Packaging Terms 8. Expediting 9. Inspection and Quality 10. Taxes 11. Insurance 12. LD Clause 13. Warranty Terms 14. Arbitration or Jurisdiction 15. Force Majeure 16. Documentation 17. PO Acceptance 18. General Terms and Conditions Letterhead PO# Vendor Ref# Purchase Order Contents Quote Ref# Order Date Delivery Address (C) www.rishabhagarwal.in
  23. 23. Direct procurement occurs in manufacturing settings only. In contrast, Indirect procurement activities concern “operating resources” that a company purchases to enable its operations. DIRECT VS. INDIRECT (C) www.rishabhagarwal.in
  24. 24. • What instigates the movement of the work in the system? • In Push systems, work release is based on downstream demand forecasts • Keeps inventory to meet actual demand • Acts proactively • e.g. Making generic job application resumes today (e.g.: exempli gratia) • In Pull systems, work release is based on actual demand or the actual status of the downstream customers • May cause long delivery lead times • Acts reactively • e.g. Making a specific resume for a company after talking to the recruiter Push vs Pull System (C) www.rishabhagarwal.in
  25. 25. • Factors that contribute to uncertainty • inaccurate demand forecasting • long variable lead times • late deliveries • incomplete shipments • product changes batch ordering • price fluctuations and discounts • inflated orders Supply Chain Uncertainty (C) www.rishabhagarwal.in
  26. 26. Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream (C) www.rishabhagarwal.in
  27. 27. UNDERSTANDING ROLE OF A SCM PROFESSIONAL (C) www.rishabhagarwal.in
  28. 28. Vendor Selection  Vendor evaluation  Critical decision  Find potential vendors  Determine the likelihood of them becoming good suppliers  Vendor Development  Training  Engineering and production help  Establish policies and procedures (C) www.rishabhagarwal.in
  29. 29. Vendor Selection  Negotiations  Cost-Based Price Model - supplier opens books to purchaser  Market-Based Price Model - price based on published, auction, or indexed price  Competitive Bidding - used for infrequent purchases but may make establishing long-term relationships difficult (C) www.rishabhagarwal.in
  30. 30. Supply Chain Strategies  Negotiating with many suppliers  Long-term partnering with few suppliers  Vertical integration  Joint ventures  Keiretsu  Just In Time (C) www.rishabhagarwal.in
  31. 31. Many Suppliers  Commonly used for commodity products  Purchasing is typically based on price  Suppliers compete with one another  Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery (C) www.rishabhagarwal.in
  32. 32. Few Suppliers  Buyer forms longer term relationships with fewer suppliers  Create value through economies of scale and learning curve improvements  Suppliers more willing to participate in JIT programs and contribute design and technological expertise  Cost of changing suppliers is huge (C) www.rishabhagarwal.in
  33. 33. Vertical Integration Vertical Integration Examples of Vertical Integration Raw material (suppliers) Iron ore Silicon Farming Backward integration Steel Current transformation Automobiles Integrated circuits Flour milling Forward integration Distribution systems Circuit boards Finished goods (customers) Dealers Computers Watches Calculators Baked goods (C) www.rishabhagarwal.in
  34. 34. Joint Ventures  Formal collaboration Enhance skills Secure supply Reduce costs  Cooperation without diluting brand or conceding competitive advantage (C) www.rishabhagarwal.in
  35. 35. Keiretsu Networks  A middle ground between few suppliers and vertical integration  Supplier becomes part of the company coalition  Often provide financial support for suppliers through ownership or loans  Members expect long-term relationships and provide technical expertise and stable deliveries  May extend through several levels of the supply chain (C) www.rishabhagarwal.in
  36. 36. Just In Time (JIT)  “the right material, at the right time, at the right place, and in the exact amount”, without the safety net of inventory.  The philosophy of JIT is simple:  the storage of unused inventory is a waste of resources.  JIT inventory systems expose hidden cost of keeping inventory.  Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting. (C) www.rishabhagarwal.in
  37. 37. Measuring Supply-Chain Performance • Inventory Turnover: how often the company replenishes inventory. High value of inventory turnover means that the inventory was not sitting around a long time. Inventory turnover = Cost of goods sold Inventory investment (C) www.rishabhagarwal.in
  38. 38. • Internet and E-Procurement • RFID Capabilities • SCM Software: ERP (Enterprise Resource Planning) Software e.g. SAP, Oracle, etc. What’s New? (C) www.rishabhagarwal.in
  39. 39. • Information links all aspects of supply chain • E-business • replacement of physical business processes with electronic ones • Electronic data interchange (EDI) • a computer-to-computer exchange of business documents • Bar code and point-of-sale • data creates an instantaneous computer record of a sale • Radio frequency identification (RFID) • technology can send product data from an item to a reader via radio waves • Internet • allows companies to communicate with suppliers, customers, shippers and other businesses around the world, instantaneously Information Technology: A Supply Chain Enabler (C) www.rishabhagarwal.in
  40. 40. RFID Capabilities (C) www.rishabhagarwal.in
  41. 41. • Direct purchase from suppliers over the Internet • Direct products go directly into production process a product, indirect products not • E-marketplaces • web sites where companies and suppliers conduct business-to-business activities • Reverse auction • a company posts orders on the Internet for suppliers to bid on E-Procurement (C) www.rishabhagarwal.in
  42. 42. Online Sourcing/ Procurement Process (C) www.rishabhagarwal.in
  43. 43. Online Sourcing/ Procurement Process (cont.) (C) www.rishabhagarwal.in
  44. 44. Online Sourcing/ Procurement Process (cont.) (C) www.rishabhagarwal.in
  45. 45. • Enterprise Resource Planning (ERP) • software that integrates components of a company by sharing and organizing information and data • SAP was first ERP software • mySAP.com • web enabled modules that allow collaboration between companies along the supply chain SCM Software (C) www.rishabhagarwal.in
  46. 46. Linking Supply Chain with SAP (C) www.rishabhagarwal.in
  47. 47. Supply Chain Economics Supply Chain Costs as a Percent of Sales Industry % Purchased All industry 52 Automobile 67 Food 60 Lumber 61 Paper 55 Petroleum 79 Transportation 62 (C) www.rishabhagarwal.in
  48. 48. Losing Sight of the Common Objective I'm glad that the hole is not on our side! (C) www.rishabhagarwal.in
  49. 49. • Wikipedia • Annual Consulting Companies Report • Course Material B Schools • Internet Open Sources References (C) www.rishabhagarwal.in
  50. 50. © RISHABH AGARWAL WWW.RISHABHAGARWAL.IN (C) www.rishabhagarwal.in

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